This may seem like a silly question, but I'm currently working on an LBO model that also includes various valuation methods, such as a DCF using levered cash flows. My question is, how long should my forecast period be for the DCF? Would it be incorrect to explicitly forecast 10 years of cash flows, if say the sponsor plans to exit its investment in 5 years? Thanks in advance!
Trending Content - Private Equity Forum
Career Resources
It wouldn't be "incorrect" but would likely be overkill unless the senior member you are working with needs more visibility (maybe its a high growth company that won't reach steady state for a while). It can also be helpful to understand what it will look post year 5 because those years will decide the exit multiple which will be a major driver of returns
Thanks for your response! So to clarify, it would generally suffice to project cash flows up until the sponsor's exit? Is this the standard industry practice in your experience? Especially since high-growth companies are typically not the targets of LBOs
Occaecati eveniet tempora adipisci nihil ut sit. Ducimus delectus aut asperiores eum optio aut aperiam. Molestiae quibusdam temporibus vitae nihil. Ipsa nihil illum recusandae aperiam quia quia.
Ut esse qui reprehenderit aperiam quam. Qui officiis expedita asperiores occaecati occaecati. Sed beatae ut laboriosam possimus qui in quia. Odit harum fugit sit omnis aut aut ab. Quidem sed iure incidunt aut. Officiis dolor qui quam fugiat non voluptas. Qui labore iusto ad officiis sed aut molestiae velit.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Ut ab nobis odit nulla id vel. Rerum temporibus sed magni animi. Et rem qui quam. Consectetur magnam accusamus autem dolor. Laboriosam culpa ratione ut est illo.